Anglo Irish Bank and the Financial Regulator enter a critical 48 hours today to see if Quinn Insurance can be saved from administration.

They will scrutinise the details of a plan by the nationalised bank to effectively take over the beleaguered insurer. After a series of candid talks last night, Anglo sources remained hopeful that a solution can be reached before a critical High Court hearing on Monday.

However, the regulator, Matthew Elderfield, is still concerned about elements of the proposal, despite an intense meeting with senior executives from Anglo. Talks between the regulator and the nationalised bank are now expected to run over the weekend ahead of the court date.

Quinn Insurance is currently under the control of preliminary administrators after the regulator raised concerns over its level of cash reserves. The Anglo proposal would only involve the bank owning the insurance company for a period of up to three years, when it would then be sold on.

The regulator has raised a series of queries over the Anglo proposal, including whether a takeover of the Quinn group by Anglo would trigger state aid problems. The regulator is also worried about what owning Quinn would do to the Anglo balance sheet, which is already coping with huge loan losses.

The bank has offered to recruit staff to run Quinn Insurance instead of the Quinn family, who exert major control over the company.

However the regulator wants more information on who these people might be -- and how they would be recruited.

Finding a buyer for Quinn Insurance, or parts of it, also remains a possibility, with rival insurer Aviva believed to be most likely purchaser of parts of the company.

The regulator declined to comment on last night's talks, but issued a brief statement confirming a meeting with Quinn staff earlier in the day.

At that meeting, the regulator said it "valued and appreciated" that employees were worried for their jobs.

But it stressed its "concerns" about Quinn's "serious and persistent" breaches of regulations.

Sources stressed that the Anglo deal might not yet be the final roll of the dice for either the Quinn Group or Quinn Insurance. The group is expected to strongly resist a move to put the insurance arm into administration if Monday's court hearing goes ahead.

And the restructuring division of PricewaterhouseCoopers is also understood to be "looking at options" for the wider Quinn Group.

The developments come amid mounting outrage among international insurers about the prospect of a rescue from the state-owned bank.

"There'd be war," warned the Irish head of one major insurer, who described the scheme as "state aid" and a "perversion" of the market place. Several sources speculated about potential legal action should the deal go through, while another said he was "embarrassed" to relay the saga to his superiors abroad.

Meanwhile, it is understood that the information gleaned over the past 11 days has made the regulator "more inclined to pursue" its investigation into the events at Quinn Insurance.

The probe is shaping up to be "long and resource-intensive" and could last for "months".

The regulator is also understood to be "considering" whether events at Quinn merit a garda investigation, but sources stressed that it was "too early to say" whether it would come to that.

Sanctions available to the regulator range from professional restrictions to fines of up to €500,000 per individual.

The Insurance Act 1989 governs what is disclosed in "any return, report, certificate or other document'' submitted to regulators and the government.

Smooth

Quinn's administrators have also begun smoothing the way for Quinn to resume taking new policies in Northern Ireland and the UK.

It is understood that one administrator met with the Financial Services Authority yesterday to explore the possibility of Quinn resuming some UK and Northern Ireland business as early as next week.

The move comes after the administrators gave the Financial Regulator plans that would see a ban on new business lifted for motor and personal insurance lines in the UK and Northern Ireland.

The regulator here has asked for more detail on this proposal before making a decision. It is understood that yesterday's talks with the FSA may assist that process.